A panel comprised of Eleni Iacovides of DARAG, Vincent Laurenzano and Bernhardt Nadell of Stroock & Stroock & Lavan, Jim Wrynn of FTI Consulting, and Frank Schmid of AIG discussed the various statutory and regulatory provisions governing insurance business transfers. The panel addressed traditional statutory and regulatory procedures for handling impaired and insolvent insurers in the United States, more recent U.S. statutes and regulations for voluntary restructuring of solvent insurers (including Rhode Island’s Regulation 68, Vermont’s Legacy Insurance Management Act, the Connecticut Division Statute, and proposed Oklahoma legislation), schemes of arrangement and Part VII transfers in the U.K., and the legal framework in the European Union. The panel also addressed Loss Portfolio Transfers (LPTs) and Adverse Development Covers (ADCs).
Jim Wrynn noted that a major issue has been the “laser focus” in the United States on consumer protection (particularly, the interest of policyholders). A second issue has been the focus on insolvent and impaired companies, rather than solvent companies seeking finality with respect to old liabilities. Jim noted that Rhode Island’s Amended Regulation 68 may go “as far as we can go,” but “legal finality” remains an open question.
Vincent Laurenzano and Bernhardt Nadell addressed in detail the features of the various statutory and regulatory approaches. With respect to Rhode Island’s Amended Regulation 68 and similar voluntary restructuring provisions, the principal question is whether other jurisdictions will recognize the transfers. The result is that there remains considerable legal uncertainty.
Eleni Iacovides discussed the European legal framework, arguing that in Europe transfers “work” and “quite easily” if the prescribed steps are followed. The “beauty” of the European framework is finality: “it will be over if you want it to be over.” In order to do a transfer in Europe, the insurer needs to be solvent. The drivers are the cost of capital, claim volatility, and the desire for finality. The position of the policyholder will be as good as or better than before because the insurer will be as well capitalized or better capitalized than before.
Frank Schmid discussed LPT and ADC concepts as alternatives to the insurance business transfer and division approaches. All concepts involve the transfer to policyholders of both financial and nonfinancial commitments. And all concepts play important roles in business restructuring beyond the realm of discontinued business. The insurance business transfer framework is an important tool for corporate restructuring and the improvement of capital allocation across the insurance industry.
Refer to page 24 in the Spring 2018 issue for the article. https://www.airroc.org/assets/docs/matters/AIRROC_Matters_Spring_2018_Vol_14_No_1.pdf